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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009

EVENTUAL REFORMS TO THE WTO SYSTEM:
A complex question that will require the ability to coordinate very diverse interests


by Félix Peña
August 2018

English translation: Isabel Romero Carranza


 

The idea of promoting reforms to strengthen the global trade system institutionalized in the WTO is now installed in the agenda of priorities to be addressed. Thus, it is hard to imagine that it won't have a relevant place in the G20 Summit in Buenos Aires.

Last May, in his opening speech to the OECD ministerial session, the President of France, Emmanuel Macron, raised the need to introduce deep reforms to the WTO system. He pointed out that pragmatic reforms should be made in order to allow the multilateral trading system to function effectively and provide real responses for contemporary challenges.

This proposal had subsequent developments. Perhaps the most relevant of them took place at a meeting in Washington, on July 25, where the Presidents of the US and the EU Commission agreed to set up a working group to address, among other issues, those related to the reforms of the WTO.

Some of the fundamental questions about the principles, rules and mechanisms of the WTO originated even before its creation. Others have emerged strongly in more recent times, especially in the last two years. These are, for example, those related to the rules that have a bearing on global trade governance, such as those of commercial non-discrimination and the mechanism for the settlement of disputes. They indicate the need to address the redesign of the multilateral system of international trade. In this perspective, it can be considered that a key point under discussion is, in fact, the principle of non-discrimination in the application of trade policies of the member countries of the system.

The Buenos Aires Summit may be an opportune time for the G20 countries -also members of the WTO -to achieve a balance between, on the one hand, the political need to recognize the importance of a multilateral system of world trade based on rules, whose compliance is not left at the discretion of each sovereign nation and, on the other, to redesign institutional mechanisms and ground rules that member countries consider most necessary.

It is in regional experiences where precedents can be found to help endow the multilateral trading system with effectiveness, efficiency and social legitimacy. The idea of a "convergence in diversity" strategy for the Latin American region could also prove valid at global level.


The issue of the reforms that should be negotiated in order to introduce them in the World Trade Organization (WTO) generates great complexity, both in terms of the conclusion of a possible agenda and in the modalities for its realization. This is due partly because of the diversity of interests at stake, compounded by the fact that WTO members are now 164 countries with varying degrees of development and participation in world trade.

The experiences of the Uruguay Round and later of the frustrated negotiations of the Doha Round, confirm the impression that it will not be an easy task. In the case of the Uruguay Round, the decision to begin its preparation was adopted in the GATT, on November 28, 1985. The negotiations concluded on December 15, 1994. (For a detailed analysis of these negotiations, the different stages and the issues addressed, some of which were not finalized, and that led to the creation of the WTO, see the excellent book by John Croome, "Reshaping the World Trading System. A History of the Uruguay Round ", World Trade Organization, Geneva 1995. On the Doha Round, its scope and the difficulties addressed see, among others, "Reforming the World Trading System, Legitimacy, Efficiency, and Democratic Governance", edited by Ernst-Ulrich Petermann, with the collaboration of James Harrison, Oxford University Press, Oxford 2005).

The idea of designing reforms to strengthen the global trading system institutionalized in the WTO is now installed in the agenda of priorities to be addressed. Thus, it is hard to imagine that it won't have a relevant place in the G20 Summit in Buenos Aires (see the July 2017, January 2018 and July 2018 issues of this newsletter).

It was last May that, in his opening speech to the OECD ministerial session, the President of France, Emmanuel Macron, raised the need to introduce profound reforms to the WTO system. He pointed out that pragmatic reforms should be made to allow the multilateral trading system to function and provide an effective and real response to contemporary challenges. In particular, he proposed to undertake a negotiation that would begin with the United States, the European Union, China and Japan and that would later include the G20 countries and those of the OECD. For this purpose, he considered it necessary to have a timely and shared diagnosis on the dysfunctionalities of the current system. He expressed his hope that a first road map leading to the necessary reforms could emerge from the G20 Summit in Buenos Aires.

Macron's proposal had subsequent developments. On July 15, in Beijing, in a meeting with the Chinese Prime Minister, Li Keqiang, the President of the European Commission agreed to create a joint working group at the level of Vice-Ministers on the reform of the WTO,

In turn, at their meeting in Johannesburg from July 25 to 27, the Group of Heads of State of the BRICS (Brazil, Russia, India, China and South Africa) addressed the issue of strengthening multilateralism and the WTO, making special reference to reforms of the system that would allow, among other changes, to recognize a greater role for emerging and developing countries and a more just and representative international order.

Perhaps the most relevant development took place on July 25, when, at a meeting in Washington, President Donald Trump and Jean-Claude Juncker, President of the European Commission, agreed to form a working group composed of "close advisers" to address, among other issues, those related to WTO reforms. In particular, they mentioned those reforms linked with unfair trade practices, theft of intellectual property, forced transfer of technology, industrial subsidies, distortions created by state-owned companies and overcapacity.

Some of the fundamental questions about the principles, rules and mechanisms originated even before the creation of the WTO, (in this regard, see the book by Yong-Shik Lee, "Reclaiming Development in the World Trading System", second edition, Cambridge University Press, Cambridge 2016). Others have emerged strongly in more recent times. especially in the last two years. These are, for example, those related to the rules that have a bearing on global trade governance, such as those of commercial non-discrimination and the mechanism for the settlement of disputes. They are key to a world trade with equal opportunities. At the time, they originated on the initiative of the United States, a country that played a fundamental role in the design of the GATT rules, later incorporated into the WTO.

These questionings indicate the need to address the redesign of the multilateral system of international trade. At their core would seem to be the global scope of the current multilateral system of international trade and not just the fact that it is governed by rules.

In such a case, any country could argue that the WTO and, in particular, the GATT-1994 Agreement, is just one of many multilateral systems of global scope to which it should be considered linked. This would be tantamount to pointing out that there is no single global multilateral trading system. The fracture of the current global system, which had its origin in the GATT and was later expressed in the WTO, would then be a consummated reality. In fact, it would imply a return to the world that led to the Second World War. The consequences of this kind of situation are well known but often forgotten. We are referring then to a major issue of global governance.

In this perspective, it can be considered that a central point under discussion is, in fact, the principle of non-discrimination in the application of trade policies of the member countries of the system. But, in that case, the questioning would not only originate in the current US government.
A significant and quite overlooked precedent to the current questioning of the global scope of the WTO system of rules can be found in Article 4, Chapter 30 of the Trans-Pacific Partnership, which contemplates the possibility that any country, even not belonging to the Pacific region, may apply for membership. Although the US has withdrawn from the Agreement-at least for the time being-this has opened the door to the possible development of another multilateral global trading system that, in practice, could coexist with that of the WTO. This would mean a sort of "emptying" of the current global system.
This TPP rule would mean altering another central rule of the GATT, namely that the main exception to the principle of non-discrimination established in Article I can only be carried out by applying Article XXIV on possible agreements for free trade areas or customs unions. Until the conclusion of the TPP, it has always been understood that these two figures refer to pairs of countries or, especially, limited groups of countries from the same geographical region.
In fact, what is really taking place is a gradual erosion of the multilateral system of the WTO, resulting from the cumulative effect of the questioning that the US has made and of the new initiatives that lead to the proliferation of interregional preferential mega-agreements, potentially incompatible with the basic principles of the current legal system.
Due to its fragmentation effects on the institutional framework of world trade, this erosion could not only affect transnational flows of goods, services and productive investments, but also have geopolitical connotations. If this were the case, it would contribute to weaken global trade governance in terms of the prevalence of conditions for peace and stability, in the world as a whole and in the different regions.
Any contributions from the Latin American region with ideas and initiatives that help with the increasingly needed redesign of the ground rules and institutions of the multilateral system of international trade could be quite useful. Four of the eight countries of the Pacific Alliance and Mercosur will participate in the upcoming G20 Summit of Buenos Aires. If they have the resolve to do so, they could voice the interests and points of view of a broad group of Latin American countries.

In this opportunity, some of the main questions to be answered, from a Latin American perspective, could be the following: which reforms of the multilateral system of international trade and its rules may be more relevant in the perspective of the countries of the region, especially considering their strategies for global commercial insertion, the requirements of their own processes of regional integration, and those of their respective processes of economic and social development? In what aspects of the redesign could positions be articulated with other member countries or groups of WTO countries?

Perhaps, it is in some regional experiences where precedents can be found to help address relevant issues that provide effectiveness, efficiency and social legitimacy to the multilateral trading system, now institutionalized in the WTO. The idea of a "convergence in diversity" strategy for the Latin American region, promoted at the time by Heraldo Muñoz when he was Minister of Foreign Affairs of Chile under President Michelle, could also prove valid globally.

This would require approaches, such as the one recently proposed by Dani Rodrik in his accurate analysis of the problems that the WTO faces today, and also of flexible instruments, such as those recommended by Simon Schropp and Krzysztof J.Pelc. These are approaches and recommendations that are worth discussing, since they would allow for a technical debate aimed at achieving a much needed coordination of interests. (See Dani Rodrik, "The WTO has become dysfunctional. Trade rules must acknowledge the benefits of divergent economic models such as China", Financial Times , August 5, 2018; Simon Schropp,"Trade Policy Flexibility and Enforcement in the WTO, Law and Economic Analysis", Cambridge University Press, Cambridge 2009, and Krzyzsztof J. Pelc, "Making and Bending International Rules, The Design of Exceptions and Escape Clauses in Trade Law", Cambridge University Press, Cambridge 2016).

In any case, the Buenos Aires Summit may be an opportune moment for the G20 countries -also WTO members- to achieve a balance between, on the one hand, the political need to acknowledge the importance of a multilateral system of world trade based on rules, whose compliance is not left at the discretion of each nation and, on the other, the redesign of those institutional mechanisms and ground rules which member countries consider most necessary.


Recommended Reading:


  • Amighini, Alessia (ed.), "China´s Belt and Road: A Game Changer?, Introduction by Paolo Magri, Edizioni Epoké - ISPI, Novi Ligure (AL) 2017.
  • Anderlini, Jamil, "El peligroso vínculo entre China y Rusia desafía el orden mundial actual", en "El Cronista-Financial Times", August 13, 2018.
  • Bacchus, James, "The Willing World. Shaping and Sharing a Sustainable Global Prosperity", Cambridge University Press, Cambridge - New York 2018.
  • Baños, Pedro, "Así se domina el mundo". Ariel - Editorial Paidós, Buenos Aires 2018.
  • Bartesaghi, Ignacio, "No es blanco o negro. No es un extremo o el otro, en la política mundial caben muchas opciones en el medio", "El Observador", Montevideo, August 17, 2018.
  • Berensztein, Sergio, "La caída de la creptocracia puede dar lugar a líderes antisistema", en diario "La Nación", August 17, 2018, pp. 33.
  • Briceño Ruiz, José, "Las teorías de la integración regional: más allá del eurocentrismo", Acontecer Mundial, Universidad Cooperativa de Colombia - Centro de Pensamiento Global (CEPEG), Bogotá 2018.
  • Easterbrook, Gregg, "It´s Better than it Looks, Reasons for Optimism in an Age of Fear", Public Affairs, New York 2018
  • Elliot, J.H., "History in the Making", Yale University Press, New Haven - London 2012.
  • Fenby, Jonathan, "Crucible. Thirteen Months that Forged Our World", Simon & Schuster, London 2018.
  • Gerchunoff, Pablo, "La Caída - 1955", Crítica - Editorial Paidós, Buenos Aires 2018.
  • Gratton, Lynda; Scott, Andrew, "The 100 Year Life. Living and Working in an Age of Longevity", Bloomsbury, London - New York 2016.
  • Hill, Charles, "Grand Strategies. Literature, Statecraft, and World Order", Yale University Press, New Haven - London, 2010.
  • Ho Chun, Kwang, "The BRICs Superpower Challenge. Foreign and Security Policy Analysis", Ashgate, Farnham 2013
  • Lewis Gaddis, John, "On Grand Strategy", Penguin Press, New York 2018.
  • Luft, Gal, "Silk Road 2.0: US Strategy toward China´s Belt and Road Initiative", Foreword by Joseph Nye Jr., Atlantic Council Strategy Papers, Washington DC 2017.
  • Nussbaum, Martha C., "The Monarchy of Fear. A Philosopher Looks at Our Political Crisis", Simon & Schuster, New York 2018.
  • Peña, Félix, "Cuestionamientos a reglas del sistema comercial global", en "TEMPUS Internationalis", Centro de Estudios Internacionales de la Universidad de Belgrano (CESIUB), July 2018, p. 7.
  • Peña, Félix, "Fortalecer la Organización Mundial del Comercio, ¿un desafío para la eficacia del G20?", en Suplemento Comercio Exterior del diario "La Nación", August 16, 2018, p. 3.
  • Pinot de Villechenon, Florence (coord.), "La Internacionalización de las Pymes Latinoamericanas y su Proyección en Europa", Fundación EU-LAC, CERALE - Institut des Amériques, Hamburg 2017.
  • Rodrik, Dani,"The WTO has become dysfunctional", "Financial Times", August 5, 2018.
  • Serbin, Andrés, "La configuración de la Gran Eurasia y su impacto en la gobernanza global", Anuario CEIPAZ 2017-2018, pp. 121 and subsq.
  • Wesley, Michael, "There Goes the Neighbourhood. Australia and the Rise of Asia", University of South Wales, Sidney 2011.
  • Wesley, Michael, "Restless Continent. Wealth, Rivalry and Asia´s New Geopolitics", Overlook Duckworth, New York - London 2016

Félix Peña Director of the Institute of International Trade at the ICBC Foundation. Director of the Masters Degree in International Trade Relations at Tres de Febrero National University (UNTREF). Member of the Executive Committee of the Argentine Council for International Relations (CARI). Member of the Evian Group Brains Trust. More information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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